Management Accounting: Principles, Systems, and Reporting

This report provides a detailed analysis of management accounting principles and systems, with a specific focus on their application within Tesco Ltd. It begins by defining management accounting and its role in decision-making, followed by an examination of key principles such as designing and compiling, management by exception, and control at source accounting. The report then delves into various management accounting systems, including cost accounting, inventory management, and price optimization, along with their respective methods like job order costing, process costing, LIFO, and FIFO. Furthermore, it presents techniques and methods used in management accounting, such as income statements, balance sheets, and ratio analysis, alongside an integration of management accounting systems and reporting within an organization. Finally, the report concludes by outlining the benefits of an effective management accounting function, emphasizing its importance in forecasting, planning, organizing, controlling performance, coordinating, and communication within the company.

Management Accounting
LO1 & LO2

1. The principles of management
accounting.
Management accounting is an essential tool for the management in
order to make effective decisions for the company's operations. It
helps the manager to analyse and control the various activity of the
Tesco Ltd.
Management accounting can be defined as the process of gathering,
analysing and presenting the financial as well as the non-financial
information from various department to the management of the
company in a way so that the management of the Tesco Ltd can
formulate various decisions and strategies for the future business
operations in order to achieve the business objectives in more
effective manner.

CONTD....
Principles
 Designing and Compiling
 Management by Exception
 Control at source accounting

2. The role of management accounting and
management accounting system
 Management accounting is the process of presenting of the
accounting information to the management in order to stimulate
their decision making process.
 It is mandatory for each type of business entity as it comprises
non profit organizations, sole proprietorship and government as
well.
 It has presence of important role in business as it is widely used
through management for accomplishing quality decision making
and better control.
 There are various management accounting system that are
essentially required in the Tesco Ltd in order to increase its
business efficiency.
Reference: Alawattage, C. and Wickramasinghe, D., 2018. Strategizing Management Accounting:
Liberal Origins and Neoliberal Trends. Routledge.

CONTD…
Type of management accounting system
Cost accounting system:
 It can be termed as an accounting system which assist to determine
the manufacturing and production cost of particular product. Cost
accounting assist in evaluating the manufacturing cost from each
input through various stages of manufacturing of the product.
 This is an essential system which assist the manager in order to track
and record the manufacturing expenses as compared top the finished
product.
 Cost accounting will assist the manager in analysing the profitability,
inventory valuation and cost control if each product by evaluating
their manufacturing cost.

CONTD…
 Job order costing: This method assist the manager top assign the cost to
a particular product or specific unit. Each job would be allotted with cost
which needs to be used.
 Process Costing: it can be termed as accumulation of cost through each
operations, processes and department. The work performance on every
unit is standardised and uniform for the mass production along with the
assembly operation.
Reference: ANAECHE, K. and ALIO, B., 2018. Reducing unemployment and poverty level through mathematics education in
nigeria. Journal of Science and Computer Education. 2(1). pp.309-321.

CONTD…
Inventory management system:
Inventory management system assist the manager of Tesco in taking
decision regarding the effective supply chain and logistic of the
company. this system is vital as the asset are considered to be the
core asset of the company. There are different method used for the
inventory valuation in Tesco Ltd. These are:
 LIFO
 FIFO
Reference: Gomes, D., Carnegie, G. D. and Rodrigues, L. L., 2014. Accounting as a technology
of government in the Portuguese empire: The development, application and enforcement of
accounting rules during the Pombaline era (1761–1777). European Accounting Review. 23(1).
pp.87-115.

Price optimization system
 it is an accounting method which assist the manager in order to
control the price of the available resources. It is an mathematical
model which assist in calculating the fluctuation of demand in
market that are varies at different price levels.
 Thus system helps in combining the data with the information
related to the cost and inventory level in order to ascertain prices
so as to improve the profit of the organisation. Price
optimization serves as an essential tool to the management in
order to analyse the customers responds to the price changes in
the market in data driven scenarios.
References: Bedford, D. S. and Speklé, R. F., 2018. Construct validity in survey-based
management accounting and control research. Journal of Management Accounting
Research. 30(2). pp.23-58.
Functions of Cost and Management Accounting . 2019 [Online] Available
Through:<https://accounting-simplified.com/management/introduction/functions.html>

3. Presenting techniques and methods
which are used in management accounting
Income statement of Tesco

CONTD…

Balance sheet of Tesco

CONTD…

CONTD…
Ratio Analysis of Tesco Plc
Profitability
Ratios Formula 2018 2017 2016
Gross profit
margin
Gross profit/ Net
sales * 100 5.8 5.2 5.2
Net profit
margin
Net profit/ Net sales
* 100 2.1 -0.07 0.25
Liquidity
Ratios
Current ratio
Current assets/
Current liabilities 0.71 0.79 0.75
Quick ratio
Liquid assets/
Current liabilities 0.55 0.64 0.59

4. Management accounting system and
reporting is integrated within an
organisation.
Managerial accounting report are essential for the Tesco Limited in
order to get the timely and accurate information regarding the
business operations and efficiency in order to attain the business
objectives and goals. The managerial report can be termed as the
process of receiving the information of the business operations and
activity ion order to planning, regulating, taking decisions and
measuring the company's performance.
 Budget report
 Cost managerial accounting reports
 Accounts Receivable Ageing reports
 Balance sheet
References: Booth, P., 2018. Management control in a voluntary organization: accounting and
accountants in organizational context. Routledge
Types of Managerial Accounting Reports . 2019 [Online] Available
Through:<https://smallbusiness.chron.com/types-managerial-accounting-reports-58384.html>.

5. The benefit of effective management
accounting function to the organisation.
Management accounting plays a vital role ion the decision making
process of the management. It can be termed as the process of
presenting the information of the business operations to the
management in a manner that can be beneficial for them in their
decision making process. Following are the management accounting
function:
Forecasting
and planning Organising Coordinating
Controlling
performance
Communicatio
n

REFERENCES
Alawattage, C. and Wickramasinghe, D., 2018. Strategizing
Management Accounting: Liberal Origins and Neoliberal Trends.
Routledge.
ANAECHE, K. and ALIO, B., 2018. Reducing unemployment and
poverty level through mathematics education in nigeria. Journal of
Science and Computer Education. 2(1). pp.309-321.
Bedford, D. S. and Speklé, R. F., 2018. Construct validity in survey-
based management accounting and control research. Journal of
Management Accounting Research. 30(2). pp.23-58.
Booth, P., 2018. Management control in a voluntary organization:
accounting and accountants in organizational context. Routledge.
Gomes, D., Carnegie, G. D. and Rodrigues, L. L., 2014. Accounting
as a technology of government in the Portuguese empire: The
development, application and enforcement of accounting rules
during the Pombaline era (1761–1777). European Accounting
Review. 23(1). pp.87-115.

CONTD…
Types of Managerial Accounting Reports . 2019 [Online]
Available Through:<https://smallbusiness.chron.com/types-
managerial-accounting-reports-58384.html>.
Functions of Cost and Management Accounting . 2019 [Online]
Available
Through:<https://accounting-simplified.com/management/intro
duction/functions.html>